May 18, 2022
Personal Loan

7 Reasons Why Your Loan Application May Be Rejected

Loan rejections can be frustrating for individuals and entrepreneurs when they are in dire need of investing in their business. It is common to see a lot of small and medium-sized businesses excelling after accessing investment opportunities. This could be linked to why a lot of businesses seek loans from commercial and microfinance institutions.


To combat the challenges faced with manually processing loan applications, the financial institution has designed some type of lending platform that allowers borrowers to easily apply and process their loans.


However, the use of this modern technology in processing loans does not automatically grant loans to businesses due to a number of factors. This may be due to eligibility status, credit score, or other factors that reduce your chances of getting approved for a loan.


What are the top 7 reasons why your loan may be rejected?

Your loan application may be rejected for a number of reasons such as the following;

  • Bad Credit Score

A bad credit score or history will reduce your chances f getting approved for a loan. Credit history is a summary of the previous loans you’ve taken in the past, showcasing how the loans were repaid and how long they took. This is usually analyzed by a financial expert to see if it is above the minimum score for a good credit score.

  • Short supply of collateral

Most lenders and financial institutions do not like to risk their money when giving out loans. They tend to ask borrowers for collateral sufficient enough to pay back their money in case the borrower is unable to meet up with the repayment. So in case, you recently got rejected after applying for a loan, your collateral may be the reason, ensure you have sufficient collateral on your next application. You might be asked to present your real estate property or car next time.

  • Refusal to repay outstanding loans

The lender takes extra measures when screening loan applications. This means your statement of bank account and salary is not the only thing that is being screened. Lenders tend to go far as screening your previous loan history to see whether you have unpaid outstanding loans. If you’re found owing loans, they will not take the chance because you might as well take turns on them.

  • Little Profit or Income

The sole purpose of every business is to make good profits. Just like every other business, banks and lenders are also running businesses and they expect high returns just like average individuals. If during the screening process, it was discovered that you earn low income or make little profit from your business, your application has a high chance of being rejected


Basically, ensure you will have a high return on investment before applying for loans to increase your chances of being approved.

  • Trivial Business Plan

During the application process, applicants are usually required to submit their business proposals for screening. To ensure you get approved, write a detailed business proposal that explicitly covers every aspect of your business. This will portray you as a business owner who has done thorough research and there is a higher chance of running a successful business.


It also showcases your clear mission and vision with a calculated estimate of sales and profit projections. Aside from all these, make sure you have also prepared your resume, personal background, financial statements, bank statements, income tax returns, and legal documents such as articles of incorporation.

  • Incomplete/Incorrect Application Process

The information provided during your application process goes a long way. It gives value to your credibility. Banks and lenders may decide not to approve your loan if the information provided is not genuine or incomplete. There are lots of eligible applicants who gt rejected due to thi=ese reasons.


Spo ensure you read out the application form before filling it, avoid mistakes and follow instructions as well. Endeavor to have a copy of your salary certificate ready, means of identification, and other relevant credentials. Every single piece of information provided will be verified by your lender so make sure they are correct.

  •  Job Instability

Your job stability and employment status play an important role in the screening process. A lot of applicants boast of good credit scores without putting their job stability into consideration. when they ended up getting rejected, they wonder why? 


A stable income and job security put your lender’s mind at rest that you will be able to pay back. When a lender sees that you’ve been in business for years or have a stable job history, your chances of getting approved increase automatically.



Your loan application may be rejected due to a number of reasons. We hope to help you prevent future reoccurrence this is why we have compiled a list of factors known for reducing your chances of getting approved for a loan.


gbadamosi Asisat

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